Yukarı

CEO’s Letter

Our strong growth has reinforced our leadership at home and abroad.

Maintaining our pioneering role with investments in technology and innovation is one of Koç Group's most important priorities.

Osman Turgay Durak
CEO

Koç Holding’s esteemed shareholders and stakeholders,

2013 was another year of growth and success for Koç Holding, despite challenges at home and abroad. Consolidated revenues increased to TL 66.2 billion while net profit for the year, after minority shares, rose by 15% to TL 2.7 billion.

Sustained Leadership in Investments, Exports, R&D and Innovation

Despite the volatile macroeconomic situation in Turkey and abroad, we maintained our growth-focused investments as planned, setting a record total of TL 6.4 billion in combined investments.

One of our top priorities is investing in technology and innovation to increase our Companies’ global competitive advantages. Within this context, we continued to lead in R&D investments and patent development this year. Four Koç Group companies ranked in the top ten on the Turkish Patent Institute’s list of Companies Filing the Most Patent Applications in 2013: Arçelik (1st), Ford Otosan (2nd), Tofaş (6th) and TürkTraktör (9th). In addition, the Turkish Exporters Assembly named Arçelik “The Most Innovative Company” for the second time.

Many other Koç Group companies also received awards from the Turkish Exporters Assembly. Tüpraş retained its position as top exporter, while Ford Otosan, Tofaş and Arçelik followed closely in 2nd, 5th and 6th place, respectively.

We financed our investments by extending liability maturities and diversifying financing sources under favorable conditions. In addition to the Tüpraş US$ 700 million international bond issue, which was completed in November 2012, Arçelik and Koç Holding successfully completed international bond issues of US$ 500 million and US$ 750 million, respectively, in 2013. Moreover, Tat, Aygaz, Setur and Koçtaş completed TL-denominated long-term bond issues under favorable conditions on the domestic market.

Consolidating Leadership through New Initiatives

Our strong growth performance consolidated our leadership at home and abroad. This year, we also maintained clear superiority in the energy sector in petroleum and LPG.

Tüpraş spent US$ 2.29 billion of the allocated US$ 2.7 billion for the Fuel Oil Upgrade Project in 2013, bringing the project to 91.3% of completion. When the investment is completed, Turkish energy imports will be reduced by a net US$ 1 billion annually.

Opet held its position as second largest in its sector by again being the fastest growing company.

Aygaz Group, operating the Aygaz-Mogaz-Lipet brands, maintained a clear lead with a 29% market share.

We continued to be the undisputed leader of the Turkish automotive sector with a market share of 24.5%. The automobile market grew 9%, which was above expectations in 2013. However, while there was 19% growth in the passenger car segment, there was a 13% contraction in the commercial vehicle segment. Ford Otosan maintained its lead in the overall automobile market with a 12.8% market share and Tofaş closed the year in 4th place with an 11.2% market share.

Ford Otosan completed construction of its second plant in Gölcük for the new Ford Courier, a product of its own R&D, and began preliminary production. Through this investment, the capacity of the plant is planned to increase from 330,000 to 415,000 vehicles. Our Company also laid the foundations for the Turkish automotive industry’s largest engineering center. The new center, which will employ 1,300 engineers, will open its doors in the first half of 2014.

Tofaş’s project to export Doblo to North America gained approval as part of Fiat and Chrysler’s global integration. Through this investment and the vehicle’s facelift, the life of the project was extended from 2018 to 2021. After successfully launching the new Linea last year, our Company has started preparations for a new automobile project, with production to begin in the second half of 2015.

Otokoç Otomotiv’s fleet has reached over 24,000 vehicles. Turkey’s leader in short-term car rental, Otokoç Otomotiv has become the 2nd largest Avis licensee in the Asia, Europe, and Africa area with its Avis brand.

Altay, the strategic national tank project under development by Otokar, passed its first two prototype winter tests and a critical design test. Fixed firing tests were completed and production of the third and fourth prototypes has begun. Moreover, Otokar launched the Atlas truck under a partnership with the Chinese Foton Company, one of the world’s largest commercial vehicle manufacturers.

RMK Marine delivered the Coastguard vessels TCSG Dost, TCSG Umut and TCSG Güven in 2013. The last ship in the project, TCSG Yaşam, will be delivered in 2014. The ships are 88 meters long and have a displacement of 1,700 tons.

The construction of additional production facilities for TürkTraktör, which maintains a clear lead in its market, is rapidly progressing with production trials scheduled to begin in June 2014. Moreover, TürkTraktör began selling New Holland and Case-brand construction equipment at the end of 2013.

Arçelik maintains its unrivaled leadership in the domestic market while it continues to expand globally, reaching 2nd place in the Western European market. Arçelik is now the 3>rd largest company in the entire European market. The Company opened a new production line at the Gaesti plant of Arctic, Romania’s leading white goods brand.

After selling its shares of Yapı Kredi Sigorta and Emeklilik to Allianz SE, Yapı Kredi had after-tax capital gain of TL 1.28 billion. As part of the sales transaction, Yapı Kredi retained a 20% share in Yapı Kredi Emeklilik and began a 15-year bank agency partnership with Allianz SE.

Yapı Kredi consolidated its 24-year leadership in credit cards. It is far and away the leader in financial leasing and factoring. Yapı Kredi also leads in investment funds and stock transactions.

After Praktiker ceased operations in Turkey, Koçtaş, leader in the organized home improvement market by a wide margin, concluded an agreement with the Company to buy its two most profitable stores. Koçtaş opened another store at Bayrampaşa Forum, which brought its store openings in 2013 to five. The total number of Koçtaş stores is now 41.

Tat grew 20% through its innovative product launchings in the pasteurized milk segment, in which it now holds a 42% share.

Setur’s duty-free revenues rose 20% in 2013. The company continued to expand its marina management operations with the addition of Çelebi Antalya and Midilli Marina to its portfolio, bringing its total to ten marinas. 2013 was a year in which Setur Marina consolidated its leadership.

KoçSistem’s solution for Biletix was awarded the “Best Business Case in the Commercial Sector” by Eurocloud in its evaluation on Turkey for 2013 for cloud computing and data center services. The Company transferred its call center activities to Comdata, the Italian IT company.

I express my heartfelt thanks to all our stakeholders, whose great support has nurtured our achievements as Koç Holding. Our fundamental goal has always been to utilize our resources in the best way possible and turn them into sustained high-yielding investments for our stakeholders. We will continue to direct all our efforts into making the strongest possible contribution to our shareholders, stakeholders and Turkey.

Sincerely,

Osman Turgay Durak
CEO